The wild world of market caps

One of the most humbling aspects in my experience investing in the private and public markets is how much I tend to underestimate the potential market cap for a company.

There are so many times when I have said, “I can’t see this becoming a $X dollar company”, only to be pleasantly surprised in the next few months/years. It’s a very humbling experience but one that is well worth studying.

There’s likely a few not mutually exclusive explanations for this.

Mathematically a market cap is infinite while you can only go down to 0. Of course, the total addressable market is finite though.

It’s much easier to find losers than it is to find winners. A lot of people can take 10 minutes, look at a financial statement or latest business deck, and determine that this company is likely destined for bankruptcy. It takes much more skill/talent/luck to find the winners, i.e. unicorns.

People are inherently more conservative when it comes to calculating the addressable market and potential for growth. We live in bubbles and sometimes forget how many people there are in the world. We tend to think of ourselves and why we would or wouldn’t use the product and extrapolate that to the world we know.

Of course, these are very simple explanations to a complex world of markets and investing but if there’s one thing the last couple years in the public and private markets have taught us, it’s never say never.

There is more money in the world than ever before. The internet has made a company’s addressable market infinitely times bigger. Technology has injected steroids into companies. Expect market caps to continue to grow and surprise you.